Editorial: With doubt over U.S. debt, statesmanship more vital than ever

Thursday

Apr 21, 2011 at 12:01 AMApr 21, 2011 at 9:15 PM

In the few days since the Dow Industrial Average dropped 140 points in apparent response to the credit-rating firm Standard & Poor's firing a shot across Uncle Sam's bow regarding the need to address the nation's massive debt, the market has made that up and then some, with the Dow rising more than 251 points.

In the few days since the Dow Industrial Average dropped 140 points in apparent response to the credit-rating firm Standard & Poor's firing a shot across Uncle Sam's bow regarding the need to address the nation's massive debt, the market has made that up and then some, with the Dow rising more than 251 points.

So what does the S&P's downgrading its opinion of U.S. Treasury securities from "stable" to "negative" mean? Whom are we to believe?

Is it Democrats and the White House who downplayed the news as an unsurprising "political judgment" and indicated they even welcomed it if it were to fuel "a bipartisan agreement on deficit reduction" and get Republicans to recognize the need to not play games and raise the nation's debt limit? Is it Republicans who found the move an ominous one and, in the words of House Majority Leader Eric Cantor, an indicator that "getting spending and our deficit under control can no longer be put off for another day," or else the GOP will not be cooperative regarding the debt limit?

Is it the New York Times, which found it "good advice" only if it means Republicans back off their insistence on "deep and immediate spending cuts" and look to the far more "economically sound" strategy of putting everything off until after 2012? Or is it the Chicago Tribune and Wall Street Journal opinion pages, which respectively called it a "disturbingly big deal" potentially portending a Greece-like economic crisis if nothing is done, and one more sign among many - "a historically subpar recovery, unprecedented deficits, persistently high unemployment, commodity inflation and now growing anxiety over U.S. creditworthiness" - of a nation in decline?

Is it S&P - which has been slapped around more than a little the last couple of days as "enablers of excess," willfully and incompetently blind to the coming crash of just a few years ago - or is it rival credit-rating agency Moody's, which found recent budget happenings in Washington "credit positive"? Is it Wall Street on Monday, or Wall Street on Wednesday?

They're all looking at the same information, but economists seem all over the map, from this being a non-event to the beginning of the end as we know it. All involved will forgive those of us on Main Street who are mighty confused.

From where we sit, you have to take this kind of analysis seriously, regardless of the baggage S&P may bring to the debate. Even a broken clock is right twice a day.

If there is any consensus, it seems to be that doubts about America's ability to pay its bills would be a very bad thing, causing interest rates to rise, inflation to soar, the value of the dollar to plunge against other currencies, higher taxes to address it all, in turn leading to reduced private sector investment and a weakening economy at the worst possible time.

Beyond that there seems to be agreement that doing nothing is not an option. "Political gridlock" was a big factor in S&P's decision, a lack of confidence in both sides to come together to address the red ink. Ultimately we see this as a prod to entice the politicians to get their act together.

That has to start with the debt ceiling. With Uncle Sam borrowing $4 billion plus per day, the current cap of $14.294 trillion will be hit in short order. If that isn't raised, the U.S. could risk default. Some suggest that would be disastrous, others say the whole thing is overblown; we trust most Americans would rather not find out. Legislators concerned about their job security would probably be wise to make sure their constituents don't have to.

From this vantage, the federal government's annual overspending and overall debt as a percentage of GDP - the size of the entire economy - is reaching alarming levels. The nation's leaders must confront that. There really is no choice. We have to believe it is possible for Washington to cut without killing the economy. Congress and the White House just have to be smart about what to cut and how quickly. Not all of Uncle Sam's spending is stimulative. Sometimes it has proven just the opposite. As even liberal Sen. Dick Durbin of Illinois has noted, "Borrowing 40 cents out of every dollar we spend for missiles or food stamps is unsustainable." If that continues, what it will lead to is utterly predictable.

Perhaps this bipartisan Gang of Six that Durbin is a part of can pull something out of its hat. Statesmanship, not partisanship, is needed now more than ever.

Peoria, Ill., Journal Star

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